Is Chinese Debt Trap cause of Pakistan and Sri Lanka’s crisis

Sri Lanka and Pakistan are the two countries in Asia which are facing economic crisis and mismanagement, whose causes again leads to the China’s debt trap.

Writing for the Times of Israel, Fabien Baussart said the crises are undoubtedly fed by politicians trying to enrich themselves while sticking to power. However, they get short term support from Chinese projects financed by the latter’s banking institutions.

These factors add up to become an economic noose around the beneficiary’s neck, said Mr Baussart, who is the President of CPFA (Center of Political and Foreign Affairs).

He argued that it is the Belt and Road Initiative (BRI) in Sri Lanka that caused the government to collapse in the face of street protests caused by severe shortages of essential commodities.

“In Pakistan, it is the much-bigger China Pakistan Economic Corridor (CPEC), infamously called the “Chinese East India Company”, a symbol of colonization. That voice, muted through media’s suppression, promises to return as Pakistan goes to the polls later this year,” Mr Baussart wrote.

Further, the CPFA President explained how the list of countries ‘trapped’ by Chinese debt is growing.

More than 40 countries have sorely felt the impact of the Chinese benevolence that seems ready to pull their people out of poverty, but instead lands them into debts that multiply and become difficult to be serviced, leave alone repaid, he said.

Among them are Laos, Zambia, and Kyrgyzstan. They mostly include less-developed economies, but some like Malaysia are intermediaries.

China’s Belt and Road Initiative (BRI) has left scores of lower and middle-income countries (LMIC) saddled with “hidden debts” totalling USD 385 billion, according to new research.

The findings are part of a report published by AidData, an international development research lab based at the College of William and Mary in Virginia. According to this report, China has used debt rather than aid to establish a dominant position in the international development finance market.

The report has analysed more than 13,000 aid and debt-financed projects worth more than USD 843 billion across 165 countries. 

According to AidData, over 40 LMICs now have levels of debt exposure to China higher than 10 per cent of their national gross domestic product.

The number of “mega-projects”–financed with loans worth USD 500 million or more–approved each year tripled during the first five years of BRI implementation. Despite larger loans and expanded loan portfolios, BRI has not led to any major changes in the sectoral or geographical composition of China’s overseas development finance program, the report said.

As per the report, 35 per cent of the BRI infrastructure project portfolio has encountered major implementation problems, such as corruption scandals, labour violations, environmental hazards, and public protests. By comparison, only 21 per cent of the Chinese government’s infrastructure project portfolio outside of the BRI has encountered similar implementation problems, according to AidData.